{"id":2032,"date":"2020-09-10T17:31:44","date_gmt":"2020-09-10T17:31:44","guid":{"rendered":"https:\/\/www.homeinsuranceking.com\/blog\/?p=2032"},"modified":"2020-09-10T17:31:47","modified_gmt":"2020-09-10T17:31:47","slug":"what-exactly-is-private-mortgage-insurance-pmi","status":"publish","type":"post","link":"https:\/\/www.gethomeinsurancequotes.com\/blog\/what-exactly-is-private-mortgage-insurance-pmi\/","title":{"rendered":"What exactly is private mortgage insurance (PMI)?"},"content":{"rendered":"\n
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One of the biggest obstacles to purchasing a new home is coming up with a sufficient down payment. The majority of mortgage lenders require a 20 percent down payment but that can be difficult in a market with high prices. As an example, if you are looking at homes in the $400,000 range you will need to bring $80,000 to the table and that can be hard to save for many of us. <\/p>\n\n\n\n

If a lender allows you to come in below the 20 percent down threshold, you will be required to carry PMI or private mortgage insurance. We put together this primer on PMI to help answer all of your questions about private mortgage insurance. <\/p>\n\n\n\n

What exactly is private mortgage insurance?<\/strong><\/h2>\n\n\n\n

PMI is insurance for your mortgage, it ensures that your lender will be paid if you default on your loan. You pay a monthly premium, just like other insurance products and if you default on your mortgage, the lender is paid out of the policy. PMI insurance doesn\u2019t protect you directly like other types of insurance, but it does allow you to become a homeowner even if you don\u2019t have the required 20 percent down payment. <\/p>\n\n\n\n

PMI insurance does not prevent you from facing foreclosure if you fail to make your mortgage payments or from your credit score getting dinged if you fall behind on mortgage payments.<\/p>\n\n\n\n

Your lender will require PMI to help cover the additional risk it is assuming when it funds your mortgage with a smaller down payment up front.<\/p>\n\n\n\n

When it comes to mortgage insurance for federally guaranteed loans, PMI is a bit different than with a conventional loan. FHA loans<\/a> and USDA loans<\/a> operate a little differently for PMI. FHA loans require mortgage insurance and while the rates are lower, you cannot cancel the policy even after you pass the 20 percent threshold for equity in the house, basically you will pay for PMI insurance over the life of the loan.<\/p>\n\n\n\n

A loan backed by the U.S. Department of Veterans Affairs or the U.S. Department of Agriculture do not require mortgage insurance. <\/p>\n\n\n\n

How much is PMI?<\/strong><\/h2>\n\n\n\n

The price of PMI can vary dramatically but it tends to range between 0.55% to 2.25% of the original loan amount, according to Genworth Mortgage Insurance, Ginnie Mae<\/a> and the Urban Institute.<\/p>\n\n\n\n

As an example, if you are looking for a $300,000 mortgage, your PMI costs would run between $1,650 to $6,750 per year which breaks down to $137.50 to $562.50 per month.<\/p>\n\n\n\n

There are a number of factors that will determine the cost of PMI:<\/p>\n\n\n\n